FTC Study: In FY 2012, Branded Drug Firms Significantly Increased theUse of Potential Pay-for-Delay Settlements to Keep Generic Competitors off the Market

In Fiscal Year (FY) 2012, the number of potentially anticompetitive patent dispute settlements between branded and generic drug companies increased significantly compared with FY 2011, jumping from 28 to 40, according to a new Federal Trade Commission staff report.  The study also found that in nearly half of these settlements, branded firms may have used the promise that they would not develop or market an authorized generic (AG) as a payment to stall generic drug firms from marketing a competing product.

The FTC staff report found that drug companies made 40 potential pay-for-delay deals in FY 2012 (October 1, 2011 through September 30, 2012).  The figure is significantly higher than last year’s total of 28 deals, and is the highest of any year since the FTC began collecting data in 2003.  Overall, the agreements reached in the latest fiscal year involved 31 different brand-name pharmaceutical products with combined annual U.S. sales of more than $8.3 billion.

Of the 40 final settlements that potentially involve pay-for-delay, FTC staff found that 19 – nearly half – involved agreements by the branded firm not to market an AG product that would compete with the generic company’s product.  Such “no-AG” promises are valuable to generic firms, as they significantly reduce the level of competition the new generic entrant will face, allowing the generic firm to secure greater market share and extract higher prices from consumers.

“Sadly, this year’s report makes it clear that the problem of pay-for-delay is getting worse, not better,” said FTC Chairman Jon Leibowitz.  “More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price.   Until this issue is resolved, we will all suffer the consequences of delayed generic entry – higher prices for consumers, businesses, and the U.S. taxpayer.”

Generic drugs are the key to making medicines affordable for millions of American consumers, and help hold down costs for taxpayer-funded health programs such as Medicare and Medicaid.  Prices for generic drugs are typically 85 percent less than brand-name drugs.

In recent years, certain brand-name companies have paid generic firms to settle their patent challenges and, in turn, delay the introduction of lower-cost medicines.  An FTC staff study has found that patent settlements that include a payment delay generic entry by 17 months longer, on average, than those that do not include some form of payment.

By delaying the entry of cheaper generics, pay-for-delay deals cost Americans $3.5 billion annually and will add to the federal deficit.  The Congressional Budget Office has estimated that legislation restricting these agreements would reduce the debt by almost $5 billion over the next decade. 

The FTC has challenged a number of these patent settlement agreements in court, contending that they are anticompetitive and violate U.S. antitrust laws.  One case, involving the generic testosterone-replacement drug AndroGel is currently pending before the U.S. Supreme Court. The agency also has supported legislation in Congress that would restrict pay-for-delay settlements. 

According to the FY 2012 staff report, companies filed a total of 140 final patent settlements.  Of those, 40 settlements contained a payment to a generic manufacturer and also restricted the generic’s ability to market its product.  Of the 140 settlements, 43 involved generics that were so-called “first filers,” meaning that they were the first to seek FDA approval to market a generic version of the branded drug, and, at the time of the settlement, were eligible to exclusively market the generic product for 180 days.  Because of the regulatory framework, when first filers delay entering the market, other generic manufacturers are impeded from entering the market, which makes such patent settlement deals particularly harmful to consumers.

The report summarizes data on patent settlements filed with the FTC and the Department of Justice during FY 2012 under the Medicare Modernization Act of 2003.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action.  To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20001.  To learn more about the Bureau of Competition, read Competition Counts.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.